Back to workRussia will raise pension ages that date back to Stalin

WHEN the Soviet Union started paying pensions in the early years of Josef Stalin’s rule, the retirement age was set at 60 for men and 55 for women. It has not been raised since. Experts have urged change for decades, but squeamish politicians have balked. Vladimir Putin declared in 2005 that it would not go up as long as he was president.

So it was with trepidation on June 14th, a month into Mr Putin’s fourth presidential term, that the government revealed plans to raise the retirement age to 65 for men and 63 for women. They announced the move along with an increase in value-added tax from 18% to 20%, hoping to bury the bad news under the opening of the World Cup that day.

Yet Russians have taken notice. Some 2.5m have signed an online petition opposing the change; according to a government pollster, Mr Putin’s approval ratings dropped to “only” 72% on June 17th, levels not seen since before the annexation of Crimea. “They want to solve the government’s money problems at the expense of the people,” gripes Alexander Serukhin, a 55-year-old engineer in Pskov. Alexei Navalny, the country’s leading opposition politician, has called for demonstrations on July 1st, and labelled the government’s decision “robbery”.

The Kremlin’s move does not signal a newfound openness to structural reform. Instead, it reflects overdue necessity. Russia’s pension problems begin, as in much of the world, with an ageing population that is now once again living ever longer. Raising the retirement age was suggested in Mr Putin’s first economic strategy in 2000. Putting off the move has compounded the problems. Russia’s retirement age is lower than in any of the OECD countries; among former Soviet republics, only Russia and Uzbekistan have not raised it since the USSR collapsed. Unhelpful demographic trends exert additional pressure, with a small generation born during Russia’s turbulent 1990s now entering the workforce and having to help pay for a large post-war generation reaching retirement age.

The increase, which will be phased in over ten years for men and 16 years for women, should significantly reduce the burden on the federal budget and allow for higher pensions to be paid. The pension fund currently sucks up subsidies worth about 2.5% of GDP. A study by a government think-tank estimates that without changes, the number of pensioners would grow from 40m today to 42.5m in 2035, exceeding the number of workers paying into the system. The proposed changes will see the number of pensioners instead shrink to 35m by 2035.

The government has promised that monthly pensions will go up by 1,000 roubles ($15) in 2019; officials say they could amount to 40% of salaries down the road. Yet many people remain sceptical of such promises, especially after the government wriggled its way out of mandated indexation by turning to one-time payments in recent years when inflation was high. Any increase in future pension payouts will depend on how the government divides the new savings between the federal budget and the pension system.

Several other problems remain unresolved. First, large swathes of citizens eligible for early pensions have been left untouched, in particular those working in hazardous conditions, such as miners and members of the military and security services. Second, the government has not dealt with the country’s outsize informal sector and the millions of workers who do not pay into the pension system at all. Crucially, the proposed changes do nothing to stimulate Russia’s underdeveloped alternatives to its main pay-as-you-go pension system, the result of a widespread distrust of pension funds and cash savings.

Whether the age rise will improve the lot of average people remains to be seen. With the change beginning in 2019, many will have little time to plan. Those caught in the transition may encounter trouble staying employed: job-retraining programmes are underdeveloped and age discrimination in hiring is widespread.

Mass protests followed the last major changes to the pension system in 2005, when the government turned a raft of benefits for pensioners into cash payments that for many did not nearly add up to the lost entitlements. Yet sustained unrest this time is unlikely. The middle-aged workers who are most affected tend to be passive and risk-averse.

The Kremlin has also been careful to distance Mr Putin from the plans, placing the blame instead on Dmitry Medvedev, the prime minister. This may leave the president room to play the saviour, perhaps by introducing an amendment softening the proposal. Regardless, the move is certain to deepen distrust of the authorities. For many, like Alexander Mikhalev, who makes watersports goods in Perm, where male life-expectancy is just 63 years, it is a sign that he can rely only on himself. “I’ll work as long as my health allows it,” he says. “I don’t expect any gifts from fate, and what’s more not from the state.”

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